Zany Brainy parent says it will buy FAO Schwarz The two toy chains, and purchaser Right Start, will maintain their retail identities but combine their support operations. Zany Brainy's parent buying FAO Schwarz

FAO Schwarz, the upscale toy retailer known worldwide, is being bought by the company that owns Zany Brainy, of King of Prussia.

Right Start Inc., of Calabasas, Calif., agreed to buy 23 FAO Schwarz stores, including the flagship store on Fifth Avenue in Manhattan, from Holland's Royal Vendex KBB for $58.25 million, the companies announced yesterday.

"We are very excited," said Thomas G. Vellios, president and chief executive officer of Zany Brainy, which Right Start bought out of bankruptcy in September. "When you combine these three brands, we become a true force in the market."

Josh Chernoff, vice president for consumer industries and retail practice at A.T. Kearney Inc., a Chicago management consulting firm, said: "It's an interesting combination because the clientele mix is likely to be complementary, as is the product mix" of the three toy-store chains. He said Right Start has focused on safety and practicality, Zany Brainy on educational and thought-provoking toys, and FAO Schwarz on high-end fun.

The three chains will maintain their identities and continue to operate independently, but the company will benefit from the combination of merchandising, warehousing, distribution and financial operations, Vellios said.

The deal, which includes Internet and catalog businesses, is expected to close in January, and is subject to U.S. regulatory approval.

Seventeen FAO Schwarz stores are not included in the deal, and will be closed. The company, which has a store in King of Prussia, would not say which locations would be closed.

Royal Vendex, with 2,500 department and specialty stores in Europe, said it made money on the FAO Schwarz operations in only five of the 11 years it has owned the chain. The chain had $208 million in sales in fiscal 2001.

Right Start is paying Royal Vendex with preferred stock convertible into five million common shares, worth $30.25 million at yesterday's close, and an $18 million four-year note. Right Start is also assuming $10 million in FAO Schwarz liabilities.

Zany Brainy filed for bankruptcy protection in May. The chain had trouble integrating its July 2000 acquisition of competing children's chain Noodle Kidoodle Inc., poured at least $9.3 million into a failed Internet joint venture, and suffered a financial pounding from volatile sales of fad-type products. Zany Brainy shareholders received no payment in the bankruptcy.

Zany Brainy has closed 14 stores - none in the Philadelphia area - since it was bought by Right Start.

Vellios said it was too early to tell how the slowing economy would affect sales at Zany's remaining 173 stores during the holidays. He said Zany, which does 40 percent of its sales in the fourth quarter, was pleased with its October sales.

Harold Brubaker's e-mail address is hbrubaker@phillynews.com.